Tuesday, February 26, 2013

The closest thing to a barbed question arose on Rubenstein's ownership position in Carlyle. The PEU co-founder shifted gears to his annual compensation, outside his carried interest stakes and equity holdings in various Carlyle investments.

There is little business journalism relative to Carlyle. Reporters line up for interviews that enhance Carlyle's public face. Corporate narcissists would have it no other way.

His gift is part of what he calls “patriotic philanthropy.” “[I try] to give back to things that remind people of American history,” Rubenstein
said. The largest meeting space in the library will be named for Rubenstein, and $4 million will be used to establish a rare book and manuscripts
endowment.

Patriotic philanthropy is the frame used to justify preferred tax status for PEU's (private equity underwriters). Rubenstein's Carlyle Group is a virtual nonprofit, much like a community's safety net hospital. Ooops, Carlyle wants to buy those too.

For corporate narcissists, it's all about maintaining their good name. Rubenstein is patriotic in a Boston Tea Party kind of way. He hates paying taxes.

Sunday, February 24, 2013

CNNMoneyhighlighted a study about private equity underwriter (PEU) performance during a financial downturn.

Private equity deals done between 2006 and 2008 actually outperformed public equity investments over the same time period.

The researchers studied 303 transactions made during those years, and
found that the absolute return on through the end of 2011 was 5.1%Researchers only examined portfolio companies that had been exited (via sale or public listing).

What about exits via bankruptcy? The following list contains Carlyle Group affiliates that went bankrupt:

Saturday, February 23, 2013

Nearly four years ago I made five predictions for healthcare deform: I offered the following in May 2009:

1. Undocumented residents being left out of any plans. This leaves 9 to 12 million uninsureds for the safety net to address in perpetuity.

2. Any public plan being privately administered.
From our hallowed halls of government to corporate executive suites,
general contracting is their forte. The question is how many layers of
"profit maximizing" private sector corporations sit between the public plan and the insured?

3. Taxing employer health insurance benefits as a revenue source. This is a ruse. When coverage becomes taxable for the business and deductible for the individual, corporations will shed that
pesky health insurance benefit like a used condom. The benefit savings
will fuel another engorgement of CEO incentive pay.

4. Taxing nonprofit community hospitals, i.e. safety net providers.
This is another revenue source idea floated by Senator Chuck Grassley
and Gail Wilensky. They suggested with all Americans having coverage,
this tax break would no longer be needed. Yet, huge holes will remain
in the safety net from the lengthy phase in and undocumented residents. Taxing safety net providers would implode those already in financial distress.
The for-profit health care sector, which grandly supports Max Baucus
and the aforementioned tax proponents, could ride in and pick up
distressed assets on the cheap. It's the same game plan private equity
underwriters (PEU's) have for buying bad banks. Will Uncle Sam finance
HCA's purchase of your nonprofit community hospital, like it does for
The Carlyle Group's buying of BankUnited?

Of the above, numbers 1,2,3 and 5 came true. There is movement on #4. As for private equity firms buying distressed hospitals at fire sale prices, consider this Illinois experience.

Heartland was a wholly owned subsidiary of iHealthcare, and in October
2005, iHealthcare decided to sell its shares in Heartland to a third
party, Wright Capital Partners, for approximately $25 million. (Id. at
13.) The sale was accomplished through what is called a "leveraged buy
out." (Id.) That's a type of transaction in which a buyer borrows the
funds needed to purchase an acquisition and then sells or pledges that
company's assets to service the debt -- essentially, the acquired
company pays its own sale price. In this case, in order to secure the
necessary funds, Heartland sold its interest in a group of physician
practices for $18 million, and then it leased those assets back. (Id. at
14.) This sort of arrangement, in which a company sells an asset for an
up front cash payment but then leases it back to use over the long
term, is called a "leaseback" or "sale-and-leaseback" transaction.

The Complaint alleges that a significant portion of the proceeds from
the transaction ($7.3 million) was distributed to iHealthcare and its
shareholders instead of being used to pay down Heartland's debt. (Id. at
15.) Therefore, Heartland contends that the practical effect of the
deal was to "monetize" Heartland's assets and extract the resulting
funds, all at a time when Heartland was insolvent or nearly so. (Id. at
20.) Heartland asserts that under the state law that it says should
apply here, when a subsidiary approaches insolvency, its owner has an
additional duty to protect the creditors in the financially-troubled
entity. (DE 17 at 12-13.)

Thursday, February 21, 2013

WSJ reported on The Carlyle Group's 4th quarter report, which came in below expectations:

Carlyle was particularly aggressive in the debt markets, where
companies it owned raised new debt to pay the firm and its investors
dividends totaling $1.7 billion.

"Although people can argue whether the enormous global liquidity is a
good thing or a bad thing, we would be derelict if we didn't take
advantage of the present situation," said William Conway Jr., Carlyle's
co-founder and co-chief executive.

Derelict? Only for those who prize greed. Easy debt, over 2:1 debt to equity and a $1.7 billion dividend bleeding. This speaks to the return of halcyon PEU days.

Update 2-24-13: Here's how the dividend bleed came across in the 4th quarter conference call:

In 2012, 78% of the realized proceeds were from sale activities versus
88% in 2011. Throughout 2012, because of the strong performance of our
portfolio and the attractive capital markets, some of our younger
portfolio of companies issued meaningful dividends, which improved the
underlying performance of our funds that were not carry-generating
events. On a related point in 2012, we had more distribution activity
coming from our younger funds. And therefore, 58% of the proceeds in
2012 were produced by funds actively realizing performance fees versus
64% in 2011.

Rubenstein recalled a fishing trip to Iceland with then-
President George H.W. Bush. “It took me three days to catch one fish,” Rubenstein
said.

Ah, but Rubenstein landed Defense Secretary Frank Carlucci, who served alongside Vice President Bush in the Reagan administration.

These yucks are from Rubenstein's early years in the Government-Corporate Monstrosity (GCM). He took Carlyle from the Bronze PEU Age to the Silver to Gold through Purgatory and into the Platinum Age, laughing all the way.

Tuesday, February 19, 2013

Three tarnished members of America's Government-Corporate Monstrosity (GCM) had their luster restored this week. Steven Rattner, John Paulson and Mark Sanford presented themselves as rehabbed.

Rattner settled with federal and state authorities over allegedly participating
in a kickback scheme to get public pension fund investments for his
private equity firm two years ago. He's back as a major GCM player.

The Hill reported on John Paulson's transgression:

Paulson & Co. was mentioned prominently in a fraud action the
Securities and Exchange Commission filed against Goldman Sachs.

The
SEC alleged that Paulson & Co. participated in a scheme in which
Goldman sold subprime residential mortgage-backed securities to
investors, such as foreign banks and pension funds, that were expected
to lose value.

Paulson & Co. bet heavily against the value
of the fund, named Abacus 2007-AC1, which included mortgage bonds it
viewed as overvalued, earning millions at the expense of Goldman clients
who invested in it.

"SALT will feature the world's political leaders and top investment managers to explore potential solutions to key issues," (that will enrich these GCM members).

The Government-Corporate Monstrosity has no shame, as evidenced by Mark Sanford's political return and Congressional staffers taking foreign-government funded boondoggles. How many Switzerland trips were to Davos for the The World Economic Forum, another huge GCM event?

The Government-Corporate Monstrosity is President Eisenhower's Military-Industrial Complex on trillions in federal steroids. GCM members lust for power, exude greed and prize clubiness. This is the milieu that creates unethical and illegal behavior. It's the very thing that ignores such behavior and does it best to dismiss or cover up.

Monday, February 18, 2013

Facebook gets multibillion-dollar tax deduction for the cost of executive stock options and share awards.Even though Facebook (FB) reported $1.1 billion in pre-tax profits from U.S. operations in 2012, it will probably pay zero federal and state taxes—and even receive a federal tax refund of about $429 million.

Billionaires get huge stock awards and the company gets a federal tax refund? That's PEU worthy.

Sunday, February 17, 2013

CARLYLE GROUP is launching an initial public offering
for automotive industry systems supplier Broadleaf of as much as
23.3 billion yen ($248.37 million), IFR reported.
Carlyle-related funds will offload 16.48 million shares to raise
17.8 billion yen.

Carlyle bought Broadleaf in 2009 for 19.5 billion yen. It looks like Carlyle and its related funds will take in 39.78 billion yen. That's nearly a double.

Gust is an online service that connects business start-ups with investor capital. One investor is The Office of the Governor-State of Texas. Investors have to accredited, i.e. have a net worth over $1 million or have made over $200,000 per year the last two years. The Gust description for an accredited investor is below:

An "Accredited Investor" is defined in Rule 501(a) of Regulation D under
Rule 144 of the Securities Act. This definition includes certain
institutional investors and (a) any natural person whose individual net
worth, or joint net worth with that person's spouse, exceeds $1,000,000
at the time of purchase; or (b) any natural person who had an individual
income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each of
those years and who reasonably expects reaching the same income level or
greater in the current year.

Therefore the average Texas citizen can't see or review the investment proposal.

Recall that Governor Perry gave The Carlyle Group's Vought Aircraft Industries $35 million to create 3,000 jobs in six years. Over that period Vought cut 35 positions. That's $1 million in taxpayer money for each job lost.

Gust is but another layer in Governor Perry's unaccountable use of taxpayer money for corporate handouts.

The
Office of the Governor-State of Texas is a part of our comprehensive
directory and accepts Gust applications via email only. Hereʼs how to
apply:

Complete your Gust site.

Weʼll generate an invitation to view your site and email it to this group.

The email will be sent from your email address (not Gust).

You will be able to see an entry for this group in your dashboard when you log in.

San Angelo's MedHab, a fledgling medical device company, is currently raising funds on Gust.

Has MedHab's Johnny Ross applied for funding from the Office of the Governor-State of Texas? He finagled a robust incentive package from the City of San Angelo ($3.6 million). How much might he hit Governor Perry up for?

The Office of the Governor-State of Texas - Ideal Startup Investment

The Office of the Governor-State of Texas
promotes and strengthens the economy of the state. The Economic
Development Bank has assistance for financing small and larger
businesses. The program provides incentives for expanding business and
relocating other businesses to the region. There are low interest loans
and debt financing available for economic development purposes. The
program also helps communities build specific programs to help increase
economic prosperity and the growth of business.

The Office of the Governor-State of Texas Invests In These Industries

• Biotechnology

• Lifestyle

• Business Products and Services

• Marketing / Advertising

• Clean Technology

• Media and Entertainment

• Computers and Peripherals

•Medical Devices and Equipment

• Consumer Products and Services

• Mobile

• Education

• Nanotechnology

• Electronics / Instrumentation

• Networking and Equipment

• Financial Services

• Other

• Food / Drink

• Retailing / Distribution

• Gaming

• Semiconductors

• Healthcare Services

• Software

• Industrial/Energy

• Sports

• Internet / Web Services

• Telecommunications

• IT Services

• Travel

The Office of the Governor-State of Texas Invests In Companies That Have Reached The Following Milestones

Not Available

The Office of the Governor-State of Texas Invests In Companies With These Funding Needs

Not Available

The Office of the Governor-State of Texas Expects Their Investments To Generate

Not Available

The Office of the Governor-State of Texas Investment Portfolio

Not Available

Will Rick Perry blow a gust of financial support under MedHab? I'm sure Johnny Ross would find that MedHab-ulous.

PEU firms are under growing pressure to invest the capital they already
have. About 28 per cent of the money raised from 2006 to 2008 has been
paid back to investors, according to Cambridge Associates, a
Boston-based research and consulting firm.

More than US$100 billion, or 14 per cent, of the US$702 billion
raised, is yet-to-be invested dry powder that firms must use or lose by
the end of this year. That is a record for
uninvested funds set to expire in a single year.

The Carlyle Group (NASDAQ:CG), today announced that Barrett Karr will
join the firm as a Principal in the Global External Affairs Group where
she will lead the firm’s U.S. government affairs. In this position Ms.
Karr will provide insights, analysis and strategy to the firm, its funds
and portfolio companies. Ms. Karr comes to Carlyle from the U.S. House
Committee on Education and the Workforce, where she serves as Majority
Staff Director. She begins her duties in March and will be based in
Washington,

Prior to becoming Staff Director in 2009, Ms. Karr was Deputy Assistant
for Legislative Affairs to President George W. Bush. From 1995-2005, Ms.
Karr served in the Office of Congresswoman Kay Granger, the latter four
years as Chief of Staff.

Is that eighteen years of "public service" or nearly two decades of doing billionaires' bidding. Likely the latter. Karr is the latest in a long line of Carlyle Group-government crossovers. This is how oligarchs do hegemony. It's a bipartisan thing. Red and Blue love PEU (private equity underwriters).

Monday, February 11, 2013

Carlyle also saw the decline in the financial markets coming in 2007,
Youngkin says. The global buyout shop took some steps to shore up the
firm, including having the partners inject capital, and its portfolio
companies.

Carlyle Group co-founder David Rubenstein spoke to BigThink in September 2007. He weighed in on carried interest taxation. Rubenstein visited Capital Hill regularly with his implied threats of moving capital offshore and hurting public pension fund returns.

Oddly, Carlyle hit CalPERS up for $652 million to save its backside in Fall 2008. That's a staggering sum. Did it save the firm? Youngkin didn't say.

Six years after Rubenstein lobbied to save private equity's preferred taxation, the carried interest loophole remains.

As for Carlyle's portfolio companies, many went bankrupt in the crisis and its aftermath. Carlyle Capital Corporation was the canary in the coal mine, perishing under a mountain of debt in Spring 2008. Few of these stories have been told by the media, much less popular speaker Rubenstein.

In today's nonsensical world private equity underwriters (PEU's) go public, doing so after decades of touting their model of levered, nonpublic capital. The Carlyle Group did just that last year, going public on NASDAQ. Fox Business Newsreported NASDAQ recently held talks with Carlyle about going private.

Think of the benefits for Carlyle, with thousands of affiliates. It could have its own IPO shop. What fee generating potential! Pair a Duff & Phelps consultation with a new NASDAQ listing and Carlyle makes much more than annual affiliate management fees. Sandler O'Neill could also generate fees for parent Carlyle in an IPO.

Update 2-12-13: NYPo suggests negotiations are ongoing between Carlyle and NASDAQ. Gotta love this inspiring quote from a Carlyle insider.

Carlyle adviser and former Securities and Exchange Commission Chairman
Arthur Levitt, who said he isn’t privy to any talks, said he looks back
fondly on the days when the exchanges weren’t run for profit. “It is an
open question as to whether changing self-regulatory bodies to
profit-making ones necessarily offers investors the same protection,” he
said.

Sunday, February 10, 2013

Carlyle Group co-founder David Rubenstein was honored for his diplomacy through the arts at the New York Public Library's Stephen A. Schwarzman building. Scharzman co-founded fellow private equity underwriter (PEU) The Blackstone Group. While both billionaires contribute heavily to charitable causes, they can leave economic destruction in their wake.

Fort Worth businessman Louis Scoma describes Woodhaven Country Club
as having been "left in a holding pattern" when he bought the 148-acre
property two years ago from a Washington, D.C.-based private equity
firm.

The previous owner had stopped investing in the club, closed
the tennis courts and shut down the food service. There were plans to
fill in the swimming pool, Scoma said.

A member for 40 years,
Scoma couldn't continue to watch the club deteriorate and made an offer
to The Carlyle Group, which had it on the block.

Few talk about the wreckage caused by PEU's and their ilk, whose greed manifested in two ways. The rapid PEU rise occurred alongside the massive exporting of U.S. middle class jobs.

PEU ubiquitization contributed to America's long term tax deficit. PEU's are happy for their affiliates to pay dramatically higher interest expenses and PEU management fees, These reduce profits, the basis for paying taxes. PEU's have been known to cut benefits, freezing or dumping pensions,, evenstopping 401(k) contributions. Oddly, the source of profits for many PEU enterprises is Uncle Sam.

Recall the Fort Worth golf club as PEU's "solve" America's ills in education, infrastructure and health care. Don't be surprised if Carlyle and company want to fill in your pool.

Wednesday, February 6, 2013

Famous Brands International chief executive Tim Casey has stepped down
to “pursue the next chapter in his career,” the Broomfield, Colo.-based
parent of the TCBY frozen yogurt and Mrs. Fields cookies concepts said
Tuesday.

Casey also oversaw the company’s January 2012 recapitalization,
after which private-equity firm Z Capital Partners LLC and global asset
management firm The Carlyle Group took over as majority stakeholders.

After a year under PEU ownership, Casey is ready for the next chapter.

Sunday, February 3, 2013

Global leaders, I prefer tamperers, came to consensus on an agenda prior to gathering in Davos, Switzerland. The top three urgent issues deal with financial instability. The next two, income inequality and unemployment, directly impact the governed.

It seems leaders are incapable of addressing the deepest problems the people face This hardly inspires confidence, must less followership.

The aim of the World Economic Forum purports to be:

Committed to Improving the State of the World

This is hard to believe when attendance costs over $40,000, enabling only a select few in the world attend. Many are there to be seen, to cut deals. That may improve oligarch's pocketbooks and ultimately benefit their preferred charities.

Secretaries of State Clinton and Kerry declared America's #1 foreign policy criteria to be a healthy U.S. economy. That means opening up more markets to Western goods and ways. It means selling more implements of war. It means access to "our oil" wherever it may be on the planet. It means America owning the global commons, seas, space and communications.

The World Economic Forum is about hegemony. The problems we face, are in part, the problems Forum leaders created. They freely admit they have little confidence in their ability to solve them. Are they incapable or unwilling?

Saturday, February 2, 2013

Global alternative asset manager The Carlyle Group L.P. (NASDAQ: CG)
today announced that its Co-Chief Executive Officer and Co-Founder David
Rubenstein, is scheduled to present at the Credit Suisse Financial
Services Forum in Miami on Tuesday February 12, 2013 at approximately
12:15 PM EST.

Will Washington Work?What major policy changes are possible in a highly partisan political climate?

The World Economic Forum posted a summary of the session. It is below (although I corrected the spelling of panelist in the piece):

Will Washington Work?

What major policy changes are possible in a highly partisan political climate?Key Points

Washington
has stumbled before, but each time a strong leader, and one able to
bridge the gap between the Democrats and Republicans, has righted it.

Government mistrust and bipartisan bickering are not going away.

Despite
government dysfunction, the US remains the best place in the world in
which to invest because of its human capital, laws, the ease of exiting
and its stability.

Synopsis
In
the late 1920s, Americans despaired about the quality of their
government until Franklin D. Roosevelt, who won a landslide victory in
the 1932 presidential election, restored American optimism and led the
country through the Great Depression.

A
similar spirit of pessimism shook America in the 1960s and 1970s, from
President Richard Nixon’s resignation to the presidency of Jimmy Carter,
until the unlikely presidency of Ronald Reagan regained the country’s
faith in their government. In 2013, a majority of Americans believe
their country is in decline. As one participant opined, America no
longer faces the existential threat of Russia, but the threat of turning
into France and entering into a period of “elegant decline”.Can
Americans snap out of it a third time? Or will the epitaph for this era
be, in the words of one participant, “slightly above zero”?

People
felt “there would be a real change” after the election, but instead it
is the same as before, said one panelist, who cited Obama’s
inauguration speech. Abraham Lincoln used the phrase “malice towards
none” in his second inaugural.“Obama didn’t have that,” said one
participant. “Instead, he said‘this is what I want and I’m going to
fight for it.’” This is especially ironic, added one participant,
because Obama catapulted himself to fame with a speech at the 2004
Democratic Convention where he argued there were no red states or blue
states. Today, however, Washington is marked by polarization along party
lines.

Members of the US
House and Senate do not stay in Washington DC over the weekend, bemoaned
one panelist. “They don’t work on big issues because big issues have
been taken away.” Another panelist blamed the tone of the debate, and
compared political attacks ads with business ads: Soft drink competitors
do not do attack each other in ads; if they did, sales would go down
and then, eventually, the market would shrink, hurting both companies.
Because of bipartisan mistrust, that market has shrunk and Americans are
less engaged with politics.

While
the gap between Democrats and Republicans is unlikely to shrink anytime
soon, the US economy will likely regain its footing. “Obama seems like
he might be more appreciative of business leaders during his second
term,” said one panelist.

Markets
around the world do not worry about the US government. Japan, China and
Saudi Arabia are willing to invest in 10-year treasury bills with
yields of under 2%, therefore,the United States can afford to handle its
debt until something gives.

Disclosures
This
summary was written by Isaac Stone Fish. The views expressed are those
of certain participants in the discussion and do not necessarily reflect
the views of all participants or of the World Economic Forum

The Meridian Institute held a conference on Global Leadership. Diplomatic Courier highlighted the aim of the session:

to explore the importance of collaboration between businesses and
governments in maintaining global competitiveness. The leaders also
discussed positioning in key markets as a strategy for successfully
competing in the global arena.

The Global Leadership conference closed with two iconic business leaders, Fed-Ex's Fred Smith and The Carlyle Group's David Rubenstein. Here's the host highlighting Carlyle's Rubensteiin:

Who not only has a global perspective, but has done so much for Washington, and through his leadership and philanthropy and his championing of the culture here

Culture could be viewed as the arts in Washington. It could also be the insidious culture of money and power that D.C. represents. Rubenstein established The Carlyle Group in 1987 with the intention of leveraging government business, power and relationships. Note that Carlyle grew from the "Great Eskimo Tax Scam."

The Meridian session started with Rubenstein acting as host, something he frequently did for the Economic Club of Washington. Rubenstein mined Fed-Ex Chief Fred Smith early vision and struggles. The topic turned to philanthropy. Fred highlighted Red-Ex's fire extinguisher role in assisting in major disasters.

Disaster relief is the most important thing we do, because no one else can do it to the extent we can.

In speaking about the U.S. debt situation Rubenstein might've well been speaking about LifeCare.

"We have too much debt. It's not sustainable."

LifeCare Hospitals declared bankruptcy in December 2012. Rubenstein didn't suggest Uncle Sam do what Carlyle did with LifeCare.

"Right now members of Congress won't vote for things their constituents don't want them to vote for. I often say to members of Congress why are you so afraid if you violate what you think your constituents want you to do?"

That could've been a recruiting speech, given Rubenstein put many Red and Blue ex-public servants to work at Carlyle. A "PEU principled" congressman would have incredible opportunities in D.C.'s parasitic greed and power world. But back to Rubenstein's philanthropy.

"I give back to things in Washington because Washington was very good to me."

The sad state of leadership was punctuated when Fed-Ex's Fred Smith said under an early Fed-Ex failure:

"I would've become a private equity guy. A lot more lucrative, I think."

Even Smith picked up on PEU's outsized returns. However, Smith and Rubenstein agreed on one critical strategy, business tax cuts.

President Obama is onboard for a cut to 28%. The price for business cuts may be an increase in the individual tax rate. Smith noted that 90% of businesses in America file as individuals. Given this fact, business tax cuts are clearly for the 10%, many of them PEU owned.

This brings me back to Rubenstein's advice. Which group does Congress not have the balls to offend? Recent history favors PEU's..

Insider Architect of the Implosion

"I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders."--Larry Summers, Ph.D.

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When Tim Geithner, the former Treasury secretary, takes over as president of Warburg Pincus, the private-equity firm, even a high-school dropout can discern a pattern.-Another person who noticed